Don’t forget price, investors warn

Investors have warned companies not to forget price entirely when they tender
for new auditors, following the emergence of sealed bids as a growing trend.

The practice sees auditors place their costs estimate inside an envelope,
which is only opened after the company has decided which firm to appoint. It is
intended to highlight the importance of audit quality, but shareholder
representatives want to ensure that competition on price is not lost.

Brian Kilpatrick, quality adviser for investments at the National Association
of Pension Funds, said: ‘There comes a point where price becomes prohibitive.
There should always be recourse to negotiation.’

Another investor representative questioned whether the practice could work in
reality, if adopted on a wide scale, without massively driving up audit costs.
He added that a company would not consider taking on staff on similar grounds if
salary demands became excessive.

Many investors are fighting tooth and nail to bring about improvements in the
quality of the audit provided to shareholders, both through the Audit Quality
Forum and direct talks with government.

But Michael McKersie, manager of investment affairs at the Association of
British Insurers, said that, while the shift of emphasis away from price and
onto quality was a positive step, there was still a need for a balance to be
struck between the price and the level of service.